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Administrative Budget

April 20, 2017

Dear University of Oregon campus community,

Over the past few months, I have spent a lot of time in Salem talking with lawmakers about the urgent need for additional state funding for public higher education. Elected officials tell me they understand the critical importance of higher education to the future of the state, but Oregon’s challenging political and fiscal realities—specifically a $1.6 billion budget shortfall in the next two-year budget cycle—make it difficult for them to meet all of the state’s needs, including those of public universities.

It is with a significant level of uncertainty that we must move forward with budget planning for the 2017–18 fiscal year that starts on July 1. The UO must take steps now, some of them difficult, to prepare for this uncertain future. As we move forward, I am committed that we minimize the impact on our academic core.

To recap developments from the last few months, the state is proposing flat funding for public higher education, which in practical terms is a $2.5 million cut next year given the way state appropriations are distributed over the biennium. In addition, the university is forecasting significant cost increases—largely created by salary growth tied to collective bargaining agreements and unfunded retirement costs—equaling approximately $25 million in additional expenses next year, putting the total gap we need to close at $27.5 million.

With the shortfall in mind, in March the UO Board of Trustees approved a conditional 10.6 percent tuition increase for resident undergraduates and a 3 percent increase for nonresident undergraduates. I believe this tuition increase is too high, but it is necessary given our financial position. Public universities in Oregon have calculated that it would take at least an additional $100 million in biennial state support for most public higher education institutions to keep tuition increases to around 5 percent and preserve core student services next year. This is why the UO’s tuition increase is conditional. For every $20 million in additional state support, we are committed to reducing our in-state tuition increase by roughly 1 percentage point. However, we will not know where state funding will shake out until July, when lawmakers will likely finalize the state budget.

With decades of shrinking state dollars, tuition has become our primary source of funding. We have adopted an enrollment strategy for next year that aims to attract a strong incoming class and modestly increase the number of new students, which would help manage rising costs.

The bottom-line is that tuition revenue and state support make up 94 percent of our general education budget, and there is a tremendous amount of uncertainty in those areas with three months left until the start of the new fiscal year. Given what we know at this time, we estimate the UO will still face a budget gap of approximately $8.8 million next year that must be closed with either new revenue or budget cuts.

It is my judgment that it would be imprudent to wait until the late summer to take action. Therefore, I am taking steps now to reduce the projected shortfall by roughly one-half, or $4.5 million, for the fiscal year beginning July 1. Those steps include the following:

A 1 percent reduction in administrative general fund spending. I have asked each vice president to provide a budget reduction proposal to me by May 22. Given that labor costs account for about 80 percent of the university’s general education budget, it is likely that some of these cuts will require hiring freezes and layoffs. I will review the proposed budget reduction plans and they will be vetted by the Office of the General Counsel and Human Resources. We anticipate being in a position to communicate any reduction decisions by July 1, with an October 1 implementation date. Schools and colleges will be exempt from this budget cut.

Estimated Savings: $1.5 million

Eliminating the strategic investment fund. In the past, the university has set aside about $2 million a year for strategic investments and asked a budget advisory group composed of students and members of the faculty and staff to review, assess, and award funding to various proposals submitted from campus stakeholders. One million dollars of these funds have already been precommitted to tenure-track faculty hires related to the cluster initiatives. As was announced earlier, we are not running the strategic investment process for the remaining $1 million this year. Any new initiatives for FY 2018 that would normally have been funded under this program will have to be supported with dollars reassigned from within individual units.

Estimated Savings: $1 million

Ceasing the distribution of graduation incentive grants. The university launched a program in 2016 to provide $10,000 grants to juniors and seniors at risk of not graduating. While this program, funded by state appropriations, is promising, it is something we must halt—at least temporarily—given the absence of adequate state funding.

Estimated Savings: $1.4 million

Ceasing distribution of interest on auxiliary and designated operation funds. Many auxiliary and designated operations funds have been allocated interest when fund balances are positive. Going forward, we will suspend those interest payments and reallocate them to our general fund to help with the budget gap. Interest will still be distributed to grant funds, plant funds, internal bank funds, and restricted gift funds.

Estimated Savings: $600,000

While I would like to write that the savings achieved from this $4.5 million of budget reductions would be enough for this year, that is unlikely to be the case. As all of you know, I have assembled an ad hoc Budget Advisory Task Force made up of faculty members, students, and staff members that is looking more closely at additional strategic steps that could be taken to either raise revenue or reduce expenses over the long term. My expectation is that any recommendations that come from this group will be more targeted than the initial steps I have outlined here and will be announced later this summer.

Despite these painful financial realities, I remain optimistic about the trajectory of the University of Oregon. As we move forward, we will work diligently to protect our academic and research programs and accelerate our recent progress in enhancing excellence in teaching and research. We will continue to invest in faculty hiring, research infrastructure, and support for student access and success programs. While today’s budget challenges will make this harder, we cannot and will not stall our pursuit of excellence at the UO.

By working together, we will be able to weather challenges that are ahead of us.

UO
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